Shares of Shriram Finance climbed 5% to Rs 2,419 in Tuesday’s trade on BSE after the NBFC firm’s board approved complete sale of its housing finance unit – Shriram Housing Finance (SHFL) to US private equity firm Warburg Pincus for Rs 4,630 crore.
Shriram Finance holds a controlling stake in SHFL while private equity firm Valiant Partners L.P. (Valiant), Mauritius, holds the remaining ownership. As a part of this transaction, Valiant will also completely divest its equity stake to Warburg Pincus.
Following the development, global brokerage firm CLSA maintained an ‘Outperform’ rating on the stock with a target price of Rs 2,800.
CLSA expects this transaction to yield a P&L gain of Rs 2,350 crore, which is 3% of the market cap.
However, the global brokerage firm also underlined that Warburg valued the company 2.4x price-to-book (PB) ratio and 21x price-to-earnings (PE) ratio, which is lower than multiples ascribed to peers like Aavas Financiers, Home First Finance, and Aptus.
Meanwhile, domestic brokerage firm Kotak Institutional Equities maintained its ‘Buy’ rating on the stock with Rs 3,000 as the target price. The brokerage expects Shriram Housing’s sale to augment book value by 3-4%.
“Shriram owns 84% stake and will get Rs39 bn from the transaction. Capital gains (assuming 20% tax rate) was estimated at Rs18.8 bn, i.e. Rs50/share. The gains will augment its FY2024 net worth by 4%. Valuation for the deal is marginally higher than Rs44/share ascribed in our SoTP,” said Kotak.
SFL is a non-banking financial company (NBFC) with a customer base of over 84 lakh customers across India. It offers commercial vehicle loans, two-wheeler loans, and MSME financing. Meanwhile, SHFL is a player in the affordable housing segment. The company has been reporting assets under management (AUM) growth rate of 56% CAGR over the last 4-year period, the company filing claimed.
The existing management team of SHFL is led by Ravi Subramanian who is Managing Director and Chief Executive Officer and he will continue to lead the business, the filing said.
In Q4 FY24, Shriram Finance reported its standalone profit after tax increased 48.73% year-on-year (YoY) to Rs 1,946 crore as against Rs 1,308 crores recorded in the same period of the previous year.
Its net interest income (NII) rose 20% YoY to Rs 5,336 crore as against Rs 4,446 crore in the same period the previous year. Net interest margin (NIM) rose from 8.99% in Q3 to 9.02% in Q4 and provisions were up 1% sequentially to Rs 1,261 crore.
10:52 am, the scrip was trading 1.5% higher on BSE. On a year-to-date basis, the stock has surged 14%.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
